Dan and Sue Kumar, 29 and 28, are trying to get ahead financially. They also want...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Dan and Sue Kumar, 29 and 28, are trying to get ahead financially. They also want to buy two "big ticket" items (a house and a car) and pay for Dan to complete his university degree requirements. Their primary financial objective, however, is to reduce debt and achieve positive cash flow. The couple also has very little savings and would like to be able to put some money aside. They purchased the condo, their first home one year ago and the mortgage payment is $5,100 monthly. The Kumars are parents of a pre-school child and Sue is a stay-at-home mom. Dan is the sole breadwinner and earns $240,000 annually. Sue is interested in returning to the labor force but concerned about whether child care costs and taxes would wipe out whatever she would earn. Unfortunately, the Kumars are starting to face some financial difficulty. Monthly payments on their debts are consuming a greater percentage of their income and, along with their mortgage, don't leave them much income for other expenses. The couple has absolutely no money in savings for emergencies. Another indicator of financial distress is the couple's negative net worth. In other words, they owe more than they own. The couple's assets total $1,051,600 and include $6,000 in a checking account, $15,600 in Dan's pension plan, a $900,000 condo apartment, and two cars and personal property worth $130,000. On the debt side, the couple owes $840,000 on their mortgage, two personal loans totaling $60,000 with payments of $1,381 monthly, $32,000 on a credit card, $71,930 on a time share with monthly payments of $1,900, and $78,000 to Sue's parents. Their net worth (assets minus debts) is, thus, minus $30,330. The personal loan and time share loan has 54 and 51 months respectively before full repayment. The credit card is maxed out and Dan usually pays $4,000 monthly which covers the 2% monthly interest charge and the balance is spent on expenses. Dan says he would like to retire when he is 55 and "live comfortably and independently." Neither Sue nor Dan has individual retirement accounts or deferred annuities, however, and Dan has stopped contributing to his employer's matching pension plan. The couple has no wills. "I don't have money to pay a lawyer to do the will and am not sure how to do it without a lawyer," Dan explained. The couple has $1.8 million of term life insurance on Dan and family health insurance with a $1 Million per person major medical limit paid for by Dan's employer. They carry third party insurance on their cars and $500,000 of condo insurance. There is no disability insurance to cover the loss of Dan's income should he be unable to work due to accident or illness. Required: 1. Using current Trinidad & Tobago income tax, NIS and health surcharge rates, calculate Dan's monthly take-home earnings. (3 marks) 2. Using the take-home earnings figure calculated in question 1 and the information in the case; prepare a monthly income statement/budget for Dan and Sue. Make reasonable assumptions about living expenses such as car maintenance, groceries, etc. (5 marks) 3. Can Dan's retirement plan be achieved? Use appropriate time value of money calculations to justify your answer. (3 marks) 4. Prepare a financial plan for Dan and Sue to improve their financial position including a suggested retirement strategy and a revised monthly budget. Offer any additional personal financial advice you deem appropriate for (10 marks) Dan and Sue Kumar, 29 and 28, are trying to get ahead financially. They also want to buy two "big ticket" items (a house and a car) and pay for Dan to complete his university degree requirements. Their primary financial objective, however, is to reduce debt and achieve positive cash flow. The couple also has very little savings and would like to be able to put some money aside. They purchased the condo, their first home one year ago and the mortgage payment is $5,100 monthly. The Kumars are parents of a pre-school child and Sue is a stay-at-home mom. Dan is the sole breadwinner and earns $240,000 annually. Sue is interested in returning to the labor force but concerned about whether child care costs and taxes would wipe out whatever she would earn. Unfortunately, the Kumars are starting to face some financial difficulty. Monthly payments on their debts are consuming a greater percentage of their income and, along with their mortgage, don't leave them much income for other expenses. The couple has absolutely no money in savings for emergencies. Another indicator of financial distress is the couple's negative net worth. In other words, they owe more than they own. The couple's assets total $1,051,600 and include $6,000 in a checking account, $15,600 in Dan's pension plan, a $900,000 condo apartment, and two cars and personal property worth $130,000. On the debt side, the couple owes $840,000 on their mortgage, two personal loans totaling $60,000 with payments of $1,381 monthly, $32,000 on a credit card, $71,930 on a time share with monthly payments of $1,900, and $78,000 to Sue's parents. Their net worth (assets minus debts) is, thus, minus $30,330. The personal loan and time share loan has 54 and 51 months respectively before full repayment. The credit card is maxed out and Dan usually pays $4,000 monthly which covers the 2% monthly interest charge and the balance is spent on expenses. Dan says he would like to retire when he is 55 and "live comfortably and independently." Neither Sue nor Dan has individual retirement accounts or deferred annuities, however, and Dan has stopped contributing to his employer's matching pension plan. The couple has no wills. "I don't have money to pay a lawyer to do the will and am not sure how to do it without a lawyer," Dan explained. The couple has $1.8 million of term life insurance on Dan and family health insurance with a $1 Million per person major medical limit paid for by Dan's employer. They carry third party insurance on their cars and $500,000 of condo insurance. There is no disability insurance to cover the loss of Dan's income should he be unable to work due to accident or illness. Required: 1. Using current Trinidad & Tobago income tax, NIS and health surcharge rates, calculate Dan's monthly take-home earnings. (3 marks) 2. Using the take-home earnings figure calculated in question 1 and the information in the case; prepare a monthly income statement/budget for Dan and Sue. Make reasonable assumptions about living expenses such as car maintenance, groceries, etc. (5 marks) 3. Can Dan's retirement plan be achieved? Use appropriate time value of money calculations to justify your answer. (3 marks) 4. Prepare a financial plan for Dan and Sue to improve their financial position including a suggested retirement strategy and a revised monthly budget. Offer any additional personal financial advice you deem appropriate for (10 marks)
Expert Answer:
Answer rating: 100% (QA)
1 To calculate Dans monthly takehome earnings we would need specific income tax National Insurance S... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
(c) Show that for some x, 0 x 1, ut(x, 0) is positive and for others it is negative. How is the sign of ut (x,0) related to the shape of the initial temperature profile? How is the sign of ut (x,...
-
C) Use the appropriate Maxwell relation and determine whether the specific heat capacity at constant pressure (Cp) is a function of pressure at onstant temperature for: i) An ideal gas ii) [6 marks]...
-
A photon with energy hw = 250 keV is scattered at an angle 0 = 120 by a stationary free electron. Find the energy of the scattered photon.
-
Mention important items for which auditor would refer to each of the following: (a) Boards meeting minutes book (b) Shareholders meeting minutes book
-
Mesilla Valley Transport is a large trucking company. Mesilla Valley Transport uses the units-of-production (UOP) method to depreciate its trucks. In 2009, Mesilla Valley Transport acquired a Mack...
-
The following tabulations are actual sales of units for six months and a starting forecast in January. a. Calculate forecasts for the remaining five months using simple exponential smoothing with a =...
-
The graph of the derivative f'(x) is given below. On what interval(s) is the function f(x) concave up? Give your answer in interval notation, and use commas to separate multiple intervals if...
-
Leisure City maintains a Pension Trust Fund for its employees. Following is a trial balance for the fund at December 31, 2011: The following transactions took place during 2012: 1. Both Leisure City...
-
3. The rise of what is known as business-process outsourcing (BPO) in the Philippines has been nothing short of phenomenal. The very first calls were taken in 1997; today the sector employs 638,000...
-
Determine whether each procedure described below is an internal control strength or weakness. Weakness or Strength Internal Control Principle 1. Large amounts of cash are kept in a desk drawer to pay...
-
Suppose that the one - year interest rate is 4 . 0 percent in the United States; the spot exchange rate is $ 1 . 2 5 / ; and the one - year forward exchange rate is $ 1 . 1 6 / . What must the one -...
-
In what ways is a corporation recognized as a person? List the ways and explain each.
-
Generativity represents a major unifying theme in middle-aged adults life stories. Generative adults develop a way of thinking about the self that fosters a caring, compassionate approach to others....
-
Let b=log3 2, a = log, 2, prove that 2a = b. 700
-
Magnet Ltd sells standard kitchen accessories in West London. Magnet Ltd is a centralized organization which adopts a traditional budgeting system. Budgets are based on previous year's figures rolled...
-
Highland Theatre is owned by Finnean Ferguson. At June 30, 2014, the ledger showed the following: Cash, $6,000; Land, $100,000; Buildings, $80,000; Equipment, $25,000; Accounts Payable, $5,000;...
-
William sold Section 1245 property for $25,000 in 2012. The property cost $35,000 when it was purchased 5 years ago. The depreciation claimed on the property was $16,000. a. Calculate the adjusted...
-
Olive Corporation was formed and began operations on January 1, 2012. The corporation's income statement for the year and the balance sheet at year-end are presented below. The corporation made...
-
Ray and Maria Gomez have been married 3 years. They live at 1610 Quince Ave., McAllen, TX 78701. Ray works for Palm Oil Corporation and Maria works for the City of McAllen. Maria's Social Security...
-
Winfred Metal Reclamation Ltd, a small company, buys scrap metal residues from local companies and treats the residues to recover the metal which is then sold to other local companies. The company is...
-
What financial statements must be prepared?
-
Mainbrace Ltd is a book publisher and retailer which trades via the Internet. The company was formed using a kit bought from a legal stationer, start up capital was provided by the major shareholder,...
Study smarter with the SolutionInn App